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WIKI ANALYSIS
CBS Corporation (NYSE: CBS, NYSE: CBS.A) is an international mass media conglomerate. CBS operates in five separate segments: Television, Radio, Outdoor, Publishing and Interactive.[1] The CBS television network is ranked first among the major U.S. TV networks by ratings, by Nielsen Media Research.[2] In 2008, CBS earned $13.9 billion in revenue, a 1% decrease from a year earlier.[3] In Q2 2009, CBS reported a net loss of $39.3 million, though "early signs of a recovery took hold in the second quarter," said CBS President and CEO Les Moonves.[4] In September 2010, Leslie Moonves said 2009 Q3 advertising revenues continue to be much better than in the first two fiscal quarters, but stopped short of making a growth prediction for Q3 revenue. [5]
CBS's businesses are heavily dependent on advertising sales to earn revenue. Because of a weakened advertising environment in 2008, the company's overall advertising sales dropped by 8%[6], which spurred the company's drop in revenue.[7] In September 2009, Audit Integrity announced that CBS was 8th on its Top 10 Bankruptcy Risk List, with a 6.2% chance of declaring bankruptcy in the coming year.[8] Moving forward, CBS must adapt its businesses to maintain healthy advertising sales or risk liquidating some of its less profitable businesses like its radio segment.
Business Overview
The CBS corporation is a global media conglomerate that operates businesses in television, radio, outdoor advertising, the Internet, and publishing.[1] In 2008, CBS earned $13.9 billion across its segments.[3]
Television (64% of Revenue)
The company's television segment is its largest business in terms of revenue, accounting for 64% of CBS's 2008 revenue.[1] The television segment is comprised of four subdivisions which include: CBS television network, CBS Paramount Network Television and CBS Television Distribution, Showtime Networks, and CSTV College Sports Television.[9]
In 2008, CBS maintained the highest ratings in the primetime daypart for overall viewers as well as viewers in the coveted 25-49 age range[10] CBS has a 50% share of the CW network, which is accounted for as an equity investment.[11] The company shares control of the CW network with Time Warner (TWX), which controls the remaining 50% share.[11] The CBS Paramount Network Television and CBS Television Distribution provides the company's television production and syndication operations. The Showtime Networks are CBS's premium subscription television stations. The Showtime channels provide commercial free media for subscribers and are mainly focussed on films, but also include sporting events and network series.[12] CBS's CSTV Networks are the company's cable network and online digital media outlets that are devoted to college sports. These networks were re-branded as CBS College Sports Network in March 2008.[12]
CBS Television Revenue Sources
- Advertising Revenue: CBS earned 66% of its revenue through advertising sales in 2008.[13] This dependency on advertising leaves CBS especially vulnerable to the proliferation of new media formats that allow consumers to time shift programming (i.e. fast forward) and thus may reduce advertisers’ willingness to purchase advertising (though current estimates of time shift programming availability/usage are relatively low). Furthermore, CBS is vulnerable to decreases in advertising in general, regardless of new media formats. In 2008, for example, CBS's television revenue declined 1% from 2007 following a 13% decrease in television advertising sales.[14] In Q1 2009, CBS's television advertising revenue dropped by 15% from a year earlier.[15] However, in Q3 of 2009, the CEO of CBS announced that advertising markets were beginning to improve,[16] and that he expected the automobile industry, which provides a large amount of advertising for CBS, to pick up and help the company's business.[17]
- License fees: Television licensing fees generated 14% of total revenue in 2008[13] These revenues are generated through the CBS Television Distribution Group and CBS Paramount TV. License revenues grew by 41% in 2008, primarily because of higher syndication sales of CBS's CSI series.[14]
- Affiliate fees: These revenues are generated through the Showtime and CSTV networks. In 2008 affiliate fees accounted for 8% of total revenue.[13] Affiliate revenues grew by 6% during 2008 and an additional 9% in Q1 2009 due to subscriber growth at the Showtime networks and the CBS Sports Network.[14][15]
- Home Entertainment revenue: The licensing of home video rights for CBS content is accounted as home entertainment revenue. In 2008 home entertainment revenue was responsible for 2% of total revenues.[13] In 2008, home entertainment revenue increased by 16% because of higher DVD sales.[6]
Radio (11% of Revenue)
CBS's radio operations include 137 radio stations across 29 states in the U.S.[1] The company targets the largest radio markets in the U.S. with 76% of its stations in the top 25 domestic markets.[18] Formatting includes adult contemporary, oldies, rock, country, all-news, talk, sports/talk, and jack (“play anything”). CBS's radio business is highly dependent on advertising revenue- in 2008, CBS earned $1.54 billion in its radio segment, a 12% decrease from 2007 because of declining advertising sales.[19] Radio revenue decreased an additional 29% in Q1 2009.[15]
Outdoor (16% of Revenue)
CBS Outdoor provides outdoor advertising around the world, with displays in most of North America’s largest metropolitan areas.[20] These displays are made on billboards, buses, trains, mall kiosks, stadium signage and transit shelters. CBS Outdoor also sells advertisements throughout the globe, including exclusive rights to sell advertising on the London Underground through 2015.[20]
CBS's outdoor division has been hit particularly hard by the global recession of 2008 as advertising spending has plummeted worldwide. In 2008, CBS earned $2.17 billion in revenue through its outdoor division, a 1% decrease from 2007.[21] The decrease in sales was primarily attributed to declines in sales in the company's North American markets.[21] However, this was partially offset by a 4% increase in international ad sales, particularly in China and France.[21] In Q1 2009, CBS's outdoor revenue dropped by 24% because of slumping ad sales.[15]
Publishing (6% of Revenue)
CBS Publishing falls under Simon & Schuster, a publishing company that publishes and distributes consumer books in the U.S. and internationally.[22] In 2008, CBS Publishing earned $857.7 million in revenue, a 3% decrease from a year earlier because of slower book sales.[23]
Interactive (3% of Revenue)
CBS Interactive operates an online content network including CNET.com, CBS.com, CBSSports.com, Lastfm.com, and BNET.com.[24] Like its other media segments, CBS Interactive depends greatly on advertising sales to earn its revenue. In early 2009, CBS developed a mobile app to stream March Madness games for $4.99. Later that year, CBS announced further plans to expand into the mobile app field with its decision to stream SEC football games for $9.99 on mobile phones, and for free online.[25] In 2008, CBS Interactive earned $421.7 million in revenue.[26] In Q1 2009, CBS's interactive revenue declined by 5%.[15]
Financial Analysis
In 2008, CBS earned $13.95 billion, a 1% decrease from 2007 because of drops in advertising sales.[7] Advertising sales dropped by 8% in 2008 primarily because of lower advertising sales in CBS's television and radio segments.[6] This decrease follows a 3% drop in advertising sales in 2007, an issue that the company expects will continue through 2009.[6] For example, in Q1 2009, CBS's revenue fell 13% from a year earlier because of slacking advertising sales across its business segments.[15]
CBS's operating expenses were $8.65 billion in 2008, a 4% increase from 2007 because of cost increases in its television and outdoor businesses.[27]
Overall, the company operated at a loss of $11.67 billion in 2008 because of one-time costs associated with a $14.18 billion pre-tax non-cash impairment charges to reduce CBS's carrying value of the company's goodwill and intangible assets.[28] In 2007 and 2006, however, CBS earned $1.25 billion and $1.66 billion in net income respectively.[29] In Q1 2009, CBS operated at a loss of $55 million, compared to a profit of $244 million in Q1 2008.[15]
Trends and Forces
Dependent on Advertising Expenditures
The increase of new media formats that allow consumers to time shift programming may reduce advertisers’ willingness to purchase advertising. In 2007, Nielsen Media Research estimated that 17.2% of households had time-shifting technology (i.e. a Digital Video Recorder (DVR) like TiVo).[30] Despite this, television is still considered the most effective medium through which an audience is reached and current studies of time-shifting technology show that not all commercials are skipped.
Since CBS depends largely on advertising expenditures to earn its revenue, the company is vulnerable to any downturns in advertising spending, such as the declines amidst the global recession in 2007-2009. Because of plummeting advertising expenditures, CBS's revenue dropped 1% in 2008 following an 8% decrease in advertising sales spurred by drops in its television, radio, and outdoor segments.[6] This decrease followed a 3% decrease in 2007[6]- the company expects its advertising revenue to decrease even further in 2009.
Changes in the Legislation
For the media industry in general, changes in the law proposed by the FCC, US Congress, and/or International laws, may adversely affect revenue by forcing companies to change their format or by prohibiting certain forms of revenue. For example, recently the US Congress proposed a law that would allow for free or a reduced charge to political candidates. The FCC found that unbundling packages of cable services may be beneficial to consumers, but this would create greater competition between channels and could adversely affect revenue.
Audience Acceptance
Predicting the level of audience acceptance of content in television and radio programming is very difficult and hence there are many flops. Also, with such high competition for an audience's attention, releasing a program during the same time or around the same time as another high quality show from a competing show may result in hindered performance, despite the program's high quality. A fair portion of revenue is dependent on the library of television programming CBS maintains (past programs, etc.), which must continuously be filled with popular content (a difficult task in and of itself), and failure to maintain it would adversely affect revenues.
CBS-AOL Merger
CBS Radio (CBS) and Time Warner (TWX) under AOL Radio are combining opertations. CBS radio indicates that this is big push in the high growth market of streaming radio. The managements' comments include that partnering with AOL will help them achieve pursuits of their own, providing opportunities to scale and positioning them as leaders in this high growth market. The streaming radio business earned $1.6 billion in revenues in 2007.[31] CBS and AOL have come together to form what they term as a leadership position with massive distribution abilities.
Competition
Because CBS is such a diverse media conglomerate, it competes against many companies across its different media industries. For example, in television broadcasting, CBS competes against other television companies like Walt Disney Company (DIS)'s ABC and General Electric Company (GE)'s NBC. The CBS television network is ranked first among the major U.S. TV networks by ratings, by Nielsen Media Research.[32]
| Company | Total Revenue (Millions) | Operating Margin | Net Income (Millions) (Loss) |
| CBS | $13,950.4 | (87.2%) | ($11,673.4) |
| General Electric Company (GE)[33] | $182,515 | 10.49% | $17,410 |
| Time Warner (TWX)[34] | $46,984 | (33.96%) | ($13,402) |
| Walt Disney Company (DIS)[35] | $37,843 | 19.56% | $4,427 |
| News Corporation (NWS)[36] | $32,996 | 16.31% | $5,387 |
Television
CBS Network ranks first among all broadcast networks in terms of total viewers. Other networks such as NBC and ABC tend to depend on the popularity of one or two shows, but CBS had 12 of the top 20 primetime shows as of November 16, 2008.[37] Furthermore, decreases in ratings at other networks have been greater than at CBS.
Television Network Ratings
The table below shows the networks' rankings for average weekly primetime viewers (millions), for the season-to-date through November 23, 2008.
| Network | Total Viewers | Adults 18-49 |
| CBS | 11.45 | 4.08 |
| ABC | 10.16 | 4.10 |
| FOX | 7.89 | 3.81 |
| NBC | 7.53 | 3.70 |
| UNI | 3.93 | 2.05 |
| CW | 2.3 | 1.37 |
| MNT | 1.60 | 0.73 |
Source: Nielson Media Research[38]
References
- ↑ 1.0 1.1 1.2 1.3 1.4 CBS 2008 10-K, Item 1, pg. 1
- ↑ CBS, ABC, Fox Still Hold Season To Date Honors, TV by the Numbers.
- ↑ 3.0 3.1 3.2 CBS 2008 10-K, Item 6
- ↑ FMQB, "Q2 Radio Revenue Roundup"
- ↑ Hollywood Reporter, "CBS optimistic about Q3 advertising"
- ↑ 6.0 6.1 6.2 6.3 6.4 6.5 CBS 2008 10-K, pg. II-6
- ↑ 7.0 7.1 CBS 2008 10-K, pg. II-7
- ↑ Contact Music: Two Big Media Companies Among Top Ten at Bankruptcy Risk
- ↑ CBS 2008 10-K, Item 1, pg. 2
- ↑ CBS 2008 10-K, Item 1, pg. 7
- ↑ 11.0 11.1 CBS 2008 10-K, Item 1, pg. 3
- ↑ 12.0 12.1 CBS 2008 10-K, Item 1, pg. 6
- ↑ 13.0 13.1 13.2 13.3 13.4 CBS 2008 10-K, pg. II-5
- ↑ 14.0 14.1 14.2 CBS 2008 10-K, pg. II-14
- ↑ 15.0 15.1 15.2 15.3 15.4 15.5 15.6 "CBS Corp Posts $55 Million Q1 Loss as Ad Revenues Plummet (CBS)" Dividend.com 5/8/2009
- ↑ Wall Street Journal: CBS CEO: Improvements In Ad Markets Continue
- ↑ Bloomberg: CBS CEO Sees ‘Encouraging Signs’ From Auto Sector
- ↑ CBS 2007 Form 10-K, Edgar Online, Page I-9.
- ↑ CBS 2008 10-K, pg. II-16
- ↑ 20.0 20.1 CBS 2008 10-K, Item 1, pg. 12,13
- ↑ 21.0 21.1 21.2 CBS 2008 10-K, pg. II-17
- ↑ CBS 2008 10-K, Item 1, pg. 15
- ↑ CBS 2008 10-K, pg. II-20
- ↑ CBS 2008 10-K, Item 1, pg. 14
- ↑ CBS Sports Streams SEC Games Free Online; Charges For Mobile
- ↑ CBS 10-K, pg. II-19
- ↑ CBS 2008 10-K, pg. II-8
- ↑ CBS 2008 10-K, pg. II-4
- ↑ CBS 2008 10-K, pg. II-12
- ↑ Digital Nation: Nielsen Pegs DVRs At 17.2%..., Media Post Daily, April 26, 2007.
- ↑ "CBS And AOL Team To Make Powerhouse In Audio Entertainment", www.siriusbuzz.com, Published March 7, 2008.
- ↑ CBS, ABC, Fox Still Hold Season To Date Honors, TV by the Numbers.
- ↑ GE GoogleFinance Page
- ↑ TWX GoogleFinance Page
- ↑ DIS GoogleFinance Page
- ↑ NWS GoogleFinance Page
- ↑ Nielsen Ratings,The TV IV, Retrieved November 29, 2008.
- ↑ CBS, ABC, Fox Still Hold Season To Date Honors, TV by the Numbers, Retrieved November 29, 2008.
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